EUR/USD Monthly Fundamental Forecast December 2013

Outlook and Recommendation

The EUR/USD  ended the month in the middle of its trading range at 1.3591 after touching the 1.37 level on the weak US dollar as traders continue to worry about the FOMC tapering and the recovery in the US. In Europe, the European Central Bank is expected to cut interest rates and increase its dovish tone, driving relative policy divergence between Europe and the US and a lower EUR. This is further complicated by regional politics, which are expected to include difficult negotiations around the banking union.

Themes that are supporting a stronger USD include: 1) a strengthening US growth profile based on an easing in fiscal drag, a recovering real estate sector and improving consumption; 2) the nearing of a Fed decision to decrease (taper) its monthly bond purchases and eventually move towards completion; 3) bullish USD market sentiment and 4) the relative position of the US against the other major economies in terms of both central bank policy and the growth outlook. However, there are several offsetting factors, which are likely to limit USD strength.

Entering December, the EUR is up 3% on a year-to-date basis, and has recovered all of the losses endured after the ECB’s unexpected interest rate cut on November 7th. The central bank’s toolkit is limited, but we still expect central bank policy divergence, and relative growth to drive a weaker EUR in 2014. Sentiment and technical both warn of near-term upside, as the CFTC was reporting a net long position of $1.5bn as of November 19th and the EUR spot rate maintains an upward trend.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Central Bank: FED and ECB

Central Bank – Fed Reserve

Date of next meeting or last meeting: December 18, 2013

Current Rate: 0.00% – 0.25%

Central Bank Name – European Central Bank

Date of next meeting or last meeting: December 5, 2013

Current Rate: 0.25%

Economic events for the month of February affecting EUR, CHF, GBP and USD